June 9, 2022
The Wall Street Journal recently published an article featuring insight from Fred Foulkes, Professor of Management and Organizations, regarding the risks associated with companies transitioning to private markets as regulators seek greater transparency.
More companies are beginning to exit the public market, which entails fewer regulatory obligations and which they believe will allow them to center their focus on long-term strategic goals. These companies have chosen to go private in order to lessen external pressures, gain the ability to invest in different company areas, and gain more influence over a smaller numbers of shareholders. Fred elaborates on this point by stating,
“When private equity buys a public company, the people who were directors with the company, their life with the company ends,”
Once transitioned to private, the size of board committees often shrinks, as do the regulations around filing requirements, such as quarterly earnings reports that are present in public companies. The Securities and Exchange Commission, however, wants to require more routine filings for private companies’ operations and finances.